The EUR/USD currency pair stood in one place for most of the day on Wednesday, not far from its 5-year lows. By tradition, in this review we will not analyze the movements that occurred after the announcement of the results of the Federal Reserve meeting, and we will not touch on the results of the meeting either. The reasons are simple. The meeting ends late in the evening, so the European and Asian markets have no opportunity to react to such an important event. Therefore, we always recommend summarizing the results of the meeting no earlier than in a day. It is obvious to everyone that volatility increases during the announcement of the results and Fed Chairman Jerome Powell's speech, but very often it happens that at first the pair moves very strongly in one direction, but within the next 10-15 hours it returns to its original positions. Therefore, in any case, it is necessary to analyze the movements of Wednesday and Thursday evenings no earlier than Thursday evening. In the meantime, it should be noted that the Fed meeting is no longer the most important event for the foreign exchange market. According to various information, during this week the European Union may introduce a new package of sanctions against Russia.
Why is this important? As we said earlier, any sanctions work like a boomerang. That is, it is impossible to impose sanctions against a country so that they have no effect on the issuing country of these sanctions. If the European Union decides to completely abandon Russian oil, it will mean that it will plunge into an energy crisis, as many media outlets report the failure of negotiations with Venezuela, Saudi Arabia and Iran regarding the replacement of oil from the Russian Federation on the European market. Simply put, the countries listed above will not be able or do not want to replace all the volumes of oil from Russia that the EU will refuse. And this means that the European Union will either have to tighten its belt very much with regard to energy carriers, which is fraught with a drop in industrial production, or else buy oil around the world, which will cost much more because of more complex logistics chains. Accordingly, oil, which already costs more than $100 per barrel and which may become even more expensive after the embargo is imposed, will cost even more for the EU, since transport costs may be much higher than they are now.
European media report on the ineffectiveness of the oil embargo
As mentioned earlier, the oil embargo from the European Union is being imposed in order to limit the revenues to the Russian budget that Moscow can direct to a military operation in Ukraine. Almost all the sanctions that have been imposed by the West in the last two months are aimed at stopping the aggression of Russian troops in Ukraine. However, the European Union itself is not sure of the effectiveness of such measures. For example, in Italy, they believe that the termination of oil contracts with the Russian Federation will be beneficial to Russia itself. These contracts were concluded at the old prices, which are much lower than the current ones. Now Russia will be able to sell all the excess oil to other countries at higher prices. And the very fact of the embargo can further increase the price of oil.
Thus, with current prices, even with the sale of smaller volumes of oil, the Russian budget will not lose anything, and Europe may enter into a prolonged energy crisis. In Germany, they believe that the idea of sanctions is good in itself and can strike a blow to the Russian budget, but it is very important to put political pressure on China and India so that they do not disrupt the boycott. Otherwise, the Kremlin will receive even more money from the sale of oil under new contracts. The Czech Republic believes that the refusal to import oil will further complicate gas relations between the EU and Russia. In other words, if an oil embargo is imposed, it will only be a matter of time before the gas chain is broken. In general, the issue of the embargo, whatever it concerns, is a very difficult issue. If the West wants to put pressure on Russia, it is important that other major players join the embargo. If this does not happen, Europe will simply shoot itself in the foot.
The average volatility of the euro/dollar currency pair for the last five trading days as of May 5 is 83 points and is characterized as "average". Thus, we expect the pair to move between the levels of 1.0467 and 1.0632 today. A downward reversal of the Heiken Ashi indicator will signal the resumption of the downward movement.
Upcoming support levels:
S1 - 1.0498
S2 - 1.0376
S3 - 1.0254
Nearest resistance levels:
R1 - 1.0620
R2 - 1.0742
R3 - 1.0864
Trading recommendations:
The EUR/USD pair is trying to maintain the downward trend. Thus, now we should consider new short positions while aiming for 1.0467 and 1.0376 in case the Heiken Ashi indicator turns down. Long positions should be opened with 1.0742 as the target if the price settles above the moving average line.
We recommend to familiarize yourself with:
Overview of the GBP/USD pair. May 5. The UK is heading for nuclear power.
Forecast and trading signals for EUR/USD on May 5. Detailed analysis of the movement of the pair and trading transactions.
Forecast and trading signals for GBP/USD for May 5. Detailed analysis of the movement of the pair and trading transactions.
Explanations for the chart:
Linear regression channels - help to determine the current trend. If both are directed in the same direction, then the trend is strong now.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which you should now trade.Murray levels are target levels for movements and corrections.
Volatility levels (red lines) - a likely price channel in which the pair will spend the next day, based on current volatility indicators.
The CCI indicator - its entry into the oversold area (below -250) or overbought area (above +250) means that a trend reversal is approaching in the opposite direction.
